Lifetime Allowance (LTA) – replaced by three new allowances

The Finance act 2024, abolished the LTA and introduced three new allowances in its place. The new allowances are: Lump Sum Allowance, Lump sum & Death benefits Allowance and the Overseas Transfers Allowance. They are broadly intended to replicate the tax-free allowances which were available to pension scheme members under the LTA regime.

The Lump Sum Allowance (LSA)

The LSA limits the total amount of certain tax-free lump sums that a member can take in their lifetime from all registered pension schemes. The standard LSA is £268,275 but a member can have a higher allowance if they hold an LTA protection (e.g. Individual Protection 2016). The following lump sums use up a member’s LSA:

• Pension Commencement Lump Sums (PCLS)
• Any tax-free element of Uncrystallised Funds Pension Lump Sums (UFPLS)
• Trivial Commutation
• Any tax-free element of Stand-alone Lump Sums (SALS)

We only pay PCLS and Trivial Commutation lump sums, and not UFPLS or SALS.

The Lump Sum and Death benefits Allowance (LSDBA)

The lump sum and death benefits allowance is used when testing lump sums paid on the grounds of serious ill-health and on death. However, for lump sums that use both the LSA and LSDBA, like a PCLS and the tax-free element of an UFPLS, if the LSDBA is lower than the LSA, it will also act to restrict a PCLS and the tax-free element of an UFPLS. The standard LSDBA is £1,073,100 but a member can have a higher allowance if they hold valid LTA protection (e.g. Individual Protection 2016). The following lump sums use up a member’s LSDBA:

• Pension Commencement Lump Sums (PCLS)
• Any tax-free element of Uncrystallised Funds Pension Lump Sums (UFPLS)
• Any tax-free element of Stand-alone Lump Sums (SALS)
• Any tax-free element of Serious Ill-Health Lump Sums (SIHLS)
• Any tax-free element of lump sum death benefits (except charity lump sum death benefits) paid in respect of the member.

The Overseas Transfers Allowance (OTA) – isn’t applicable to the TPS

The OTA applies to transfers paid on or after 6 April 2024. The allowance places a limit on the total amount of qualifying recognised overseas pension scheme (QROPS) transfers that can take place from 6 April 2024 onwards without incurring a tax charge. It operates separately from the Lump Sum Allowance and Lump Sum and Death Benefit Allowance. We don’t allow QROPS transfers.

More information on the new allowances can be found on HMRC’s website (This link opens in a new window).

Benefits taken prior to 6 April 2024

Any benefits already taken are accounted for when calculating the LSA available, this includes those taken under the LTA regime before the LSA was introduced. Where benefits have been taken prior to 6 April 2024 an assumed lump sum of 25% of the fund is presumed to have been taken unless a Transitional Tax-free Amount certificate has been provided.

Transitional Tax-Free Amount Certificate (TTFAC) process

HMRC have published a tool for members to check whether they can apply to their scheme for a TTFAC (This link opens in a new window).

A TTFAC must be issued prior to the first relevant benefit crystallisation event occurring.

More information on the new allowances can be found on HMRC’s website (This link opens in a new window).